The pandemic has disrupted business processes and is challenging supply chains across the world. 86% of procurement leaders observed gaps in procurement capabilities due to the impact of Covid-19, suggests Mckinsey. Demand imbalances, inventory challenges, and procurement risks due to the Covid-19 crisis have made organizations unstable.
To thrive in the new normal and overcome operational challenges, organizations need to implement procurement best practices and invest in technologies that can allow them to adjust rapidly to changing realities and circumstances. Factors like remote work, online meetings, and changing customer expectations have compelled procurement leaders to re-evaluate procurement strategies.
To formulate an effective recovery strategy; it’s vital to think about questions like:
Will my existing supplier be in business post-Covid-19?
How do I build a resilient supply base to ensure continuous supply?
Is my business equipped to deal with risks related to lead time and border closures?
For minimized procurement risk, improved collaboration with external and internal stakeholders, and better transparency in the supply chain, CPOs are adopting digital procurement at scale.
What is Digital Procurement?
Over the years, procurement as a function has evolved from being transactional to strategic. Technology has acted as a catalyst in this evolution. It is no more about obtaining cost-effective supplies. Focus has shifted to high spend visibility, real-time analytics, and higher savings while reducing cost-to-serve.
According to Deloitte, Digital procurement is the application of disruptive technologies that enable Strategic Sourcing (S2C) to become predictive, Transactional Procurement (P2P) to become automated, and Supplier Risk Management (SRM) to become proactive.
Digital procurement is more than just using software tools like e-procurement and e-invoicing solutions to automate mundane tasks. It aims at embracing digital to increase bottom-line efficiency and top-line growth. It leverages artificial intelligence and data analytics to obtain deep insights into the value-chain for transforming procurement.
Impact of Digital Procurement
Digital procurement has a three-fold impact on business processes. It impacts strategic sourcing, procurement automation, and supplier risk management all at once. To derive maximum value from digital procurement, let’s understand its impact on each process in detail:
Strategic Sourcing (S2C):
With digital transformation in procurement, it is possible to have better visibility into supplier bases and prices. The approach to sourcing becomes more predictive and empowers procurement professionals to engage in transparent high-value agreements. They can act on all the timely alerts related to indexed pricing, penalties, and renewals to save thousands of dollars for the business.
Digital procurement facilitates anticipation of demand by utilizing artificial intelligence and executing automated secure payments. Payments get triggered using real-time delivery signals. Additionally, the exchange of goods also becomes easy due to decentralized ledgers.
Procurement Automation (P2P):
Digital procurement aims at automating routine tasks in a procure-to-pay cycle to increase bottom-line efficiency. Tasks like processing purchase orders, requisitioning goods and services, validating reception of material, payments, and invoice management require minimal human intervention.
Additionally, digital procurement also provides value by enhancing the user experience. Organizations try to mirror Amazon-like experience by leveraging ease-of-use as a key element.
Supplier Risk Management (SRM):
Digital procurement facilitates better collaboration with the supplier and allows monitoring of supplier risk in real-time. Technologies like augmented reality and crowdsourcing aid virtual supplier visits and audits respectively.
These preemptive risk mitigation strategies take care of damage control and allow procurement professionals to focus more on optimizing the process.
Benefits of Digital Procurement
Now that we have discussed what digital procurement is and how it impacts any business, let us also highlight the benefits of jumping on the digital bandwagon:
- Risk Mitigation: Digital procurement facilitates proactive monitoring of the supply-chain activities. Due to increased visibility, it’s easier to assess risk related to the supplier’s profile, KPIs, financial risk, and legal exposure. It allows procurement officers to be future-ready.
- Sustainability of Business: There’s an enhanced speed, control, and efficiency across all procurement activities. Digital procurement facilitates streamlined lower cost-operations resulting in a sustainable business model.
- Satisfied Users: Digital transformation in the procurement space leads to automation of tedious tasks. Procurement professionals become productive and focus more on the optimization of the P2P process.
- Enhanced User Experience: Digital procurement delivers an intuitive and consumerized app environment for an enhanced user experience. Guided buying directs procurement officers to preferred suppliers while maintaining compliance. While purchasing insights from buying history make a repeat purchase and blanket purchase easier.
- Higher Spend Visibility: Real-time spend visibility reduces maverick spend across direct and indirect material categories. Optimized working capital based on historical data trends streamlines operations and financials, resulting in substantial cost-savings.
- Informed Decision Making: Advanced analytics provides actionable insights resulting in informed decision-making. Furthermore, demand forecasting results in the effective management of demand fluctuations and provides avenues for higher gains.
Digital technologies disrupting the procurement space
Based on the degree of deployment in an organization, you can bucket the disrupting technologies into three categories: emerging, maturing, and core.
Every technology begins its journey as an emerging technology and has the potential to impact an organization in the future (Eg. Cyber Tracking, Virtual Reality, etc.). Eventually, the emerging technologies enter the maturity phase and transform the organizations with minimum investments (Eg.- Robotics, Artificial Intelligence, 3D printing, etc.). Finally, after the maturity phase, technologies become core solutions and are imperative for transforming procurement in an organization (Eg.- eProcurement, eInvoicing, Contract Lifecycle Management, etc.).
Let’s discuss a few of the technologies maturing and emerging technologies that are impacting the procurement function:
- Robotic Process Automation (RPA)- RPA eliminates the requirement of full-time equivalent (FTE) resources by identifying patterns and performing rule-based tasks. RPA also finds usage in the vendor selection process and demand planning. Furthermore, it can identify the intent of mails and suggest auto-replies.
- Machine learning and AI- Machine learning and artificial intelligence provide purchasing insights based on purchase history. AI also finds usage in taxonomy design, spend categorization, and contract compliance.
- Blockchain- It leverages an encrypted data structure to create digital transaction ledgers. These ledgers can verify P2P transactions and trigger automated payments. Furthermore, blockchain simplifies record-keeping for an organization and allows easy sharing of information within a network.
- Advanced Analytics- Analytics provides actionable insights to tackle situations like cost/price fluctuations, demand imbalance, supplier/financial risk, and allows procurement officers to make informed decisions.
- Content Extraction Tools- Tools like Optical Character Recognition (OCR), along with learning algorithms, facilitate deciphering and content extraction from documents like invoices, contracts, bills of materials. It also eases the process of audit, document comparisons, and exception management in procurement.
Whatfix your way through Digital Procurement
Although digital procurement delivers unparalleled value to enterprises, it comes with product adoption and change-management challenges. Training employees to perform the simplest of tasks like participating in an e-auction, submitting their RFx responses, and raising a purchase requisition can also be challenging. It is difficult to familiarize them with product flows.
Now that remote work has gained more acceptance due to the pandemic, these adoption and training challenges have amplified.
If you have decided to embrace digital, a digital adoption solution like Whatfix can become your constant companion for a smoother transition. Whatfix acts as an overlay above the existing application to provide contextual support and facilitate learning in the flow of work. The interactive walkthroughs provide its users step-by-step guidance, which boosts their confidence in using the application. Furthermore, Whatfix is power-packed with features like beacons, smart tips, and data validation to accelerate digital transformation initiatives like digital procurement.
To learn more about how Whatfix can help your organization embrace digital procurement, schedule a demo with our experts today!